TigerHawk

TigerHawk (ti*ger*hawk): n. 1. The title of this blog and the nom de plume of its founding blogger; 2. A deep bow to the Princeton Tigers and the Iowa Hawkeyes; 3. The nickname for Iowa's Hawkeye logo. Posts include thoughts of the day on international affairs, politics, things that strike us as hilarious and personal observations. The opinions we express are our own, and not those of each other, our employers, our relatives, our dead ancestors, or unrelated people of similar ethnicity.

Saturday, December 24, 2011

Note to both parties: Do not involve me in your vote-buying dirty work

By TigerHawk at 12/24/2011 09:21:00 AM

Because of the temporary two-month structure of the payroll tax cut just passed, the IRS has developed a "recapture tax" to be levied on federal income tax to recover the money from anybody whose wages in 2012 may exceed the Social Security maximum (around $110,000 per year).

In other words, the federal government is forcing employers to bear the expense of distributing cash to workers, and then turning around and spending more money to collect that cash back from some of them.

This tax cut is dumb, dumb, and dumber, and any politician of either party who voted for it (or signed it in to law) is by definition a disingenuous self-interested anti-business dirtbag. No business is going to hire somebody, directly or indirectly, because of a two-month reduction in the payroll tax. The only purpose of the payroll tax cut is to put more cash in the hands of workers, presumably so they can spend it or pay down revolving debt incurred to buy the GI Joe with the Kung Fu Grip or whatever it is people are buying this year. In either case, no business is going to add employees now to respond to a two-month increase in aggregate demand. So the cut's only possible benefits are (i) the microsurge in aggregate demand, in and of itself, which may lead to a little more overtime but will not lead to any new jobs, or (ii) to buy votes.

This buying of votes comes at a cost, even if it is "fully paid for" under some CBO-approved legerdemain. It requires human resources and payroll people all over the country to do a bunch of unnecessary work and incur a bunch of dead weight cost -- expense that will do nothing to improve anybody's long-term standard of living -- just when they are busiest trying to do other work. The federal government has essentially dragooned American businesses in to making random little payments to certain people (people who are employees, unless they are white collar employees with some experience), a good portion of which will be taxed back in a year anyway.

It seems to me that if the government wants to make random little payments to certain people, it should send them checks and leave American business out of its vote-buying dirty work altogether. It also seems to me that those of us in who actually create jobs should not forget that in this dirty little episode both Democrats and Republicans conspired again to use us to buy votes for them.

7 Comments:

Part if what angrifies me about this is this: No business is going to hire somebody, directly or indirectly, because of a two-month reduction in the payroll tax.

Even disregarding your point about cost to employers' for implementing this idiocy, this payroll tax "reduction" is not a reduction of the employer's payroll cost: he saves nothing from this, and so he has no extra funds with which to afford one more hire. It's all dependent on spending.

Also, The only purpose of the payroll tax cut is to put more cash in the hands of workers, presumably so they can spend it or pay down revolving debt.... is more foolishness.

It's a temporary reduction. The recipients aren't going to spend it. There will be no "aggregate demand" bump; the recipients will use it to pay down debt (revolving or longer term), or they'll save it against tomorrow, when the reduction disappears, as they've done with all the other failed temporary "stimuli." After all, what can I get for my $40/paycheck? That's a pizza and beer each week. That's a couple of books. It's a tank of gas. That's trivial stuff. I'll save it, or I'll pay down existing debt.

So, we're inflicting added costs on employers for no purpose other than government saying that it can.

Interesting to me that our local leftie paper headlined this as, "Obama Bypasses Congress." No one expects them to understand anything about the separation of powers or the budgetary process - at least, not when they can cloak him with macho superpowers.

We could have passed an extension or even an expansion of the cut for a full year, but that was apparently out of the question for Republicans. And while it's not the best stimulus out there, it's decent and probably the only thing that was big enough to make a difference that had a chance of passing. Unfortunately, Republicans aren't interested in actually doing something to stimulate demand and instead are concerned with fantasyland regulatory issues that are at absolute best a minor issue barely worth mentioning.

Brian, your facts are wrong. Repubs wanted a full year cut, if the cut had to happen at all. It was the President who pushed for a two month cut. The Repubs were willing to trade the idiotic two month extension for a chance at XL approval, but even that backfired.

For the reasons set forth in the post, it is an inherently stupid tax cut because it will not change behavior in any way that promotes growth. Unless we are going to fund entitlements by some different mechanism altogether (which I would favor), in which case we should do so and abolish the payroll tax entirely.

The one result that is intolerable is to cut the payroll tax and not (credibly) cut other spending or raise other taxes to make up for it.